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Jobless claims drop below 400,000 mark

By Hibah Yousuf, staff reporterDecember 30, 2010: 11:52 AM ET

NEW YORK (CNNMoney.com) -- For the first time in more than two years, the number of Americans filing for their first week of unemployment benefits fell below 400,000 last week -- a ray of hope in the one of the longest job droughts in U.S. history.

The number of initial claims fell to 388,000 in the week ended Dec. 25, down 34,000 from the week before, the Labor Department said Thursday.

The report marks the first time claims have broken below 400,000 since July 2008 -- two months before the financial crisis peaked with the Lehman Brothers bankruptcy.

"It's impressive to finally see unemployment claims fall below 400,000," said Stuart Hoffman, chief economist with PNC Financial Services, who said that if there were a magic number for unemployment claims, 400,000 would be it.

Though the figure is seasonally adjusted, Hoffman said the data can get distorted around the holiday period, and this week's number included the Christmas holiday.

"We need to see more evidence over the next few weeks, particularly in the early part of 2011, to know that this is a real downside breakout and fewer people are getting laid off," Hoffman said.

While it's just one component of a healthy job market, Hoffman said a downward trend in first-time unemployment claims would be a "major accomplishment."

The 4-week moving average of initial claims -- a number that tries to smooth out week-to-week volatility -- was 414,000, down 12,500 from the previous week.

The weekly number of new claims has been stuck between 400,000 and 500,000 for more than a year after peaking at 651,000 in March 2009.

But during the last month, claims have started to drift toward the lower end of the range.

It's not all good news. Even with the drop in new claimants, more than 4.5 million Americans are still receiving weekly unemployment insurance.

That's because firms have been slow in adding employees to their payrolls, and the second vital component for a strong job market, of course, is an upward trend in hiring.

The number of Americans filing for ongoing claims jumped 57,000 to 4,128,000 in the week ended Dec. 18, the latest data available. Ongoing claims reflect people who file each week after their initial claim until the end of their standard benefits, usually after 26 weeks.

The Labor Department releases the December jobs report next week, and economists expect the labor market added 111,000 jobs during the month, according to a consensus estimate from Briefing.com. That would be up from a disappointing 39,000 jobs added in November.

Hoffman is even more optimistic, with a forecast of 150,000 job gains during the month. He also expects the November and October figures will be revised higher.

Still, Hoffman said the economy needs to be adding around 250,000 jobs a month consistently to make substantial progres in the overall jobs picture.

"It's going take a while to get the unemployment figures out of the shadows of the high numbers, but we're going to keep moving in the right direction over the coming year," Hoffman said.

He expects the unemployment rate, which currently stands at 9.8%, will tick lower and be closer to 9% by the end of 2011 instead of hovering just below 10%.